ResMed Inc. (RMD) Earnings Call Transcript & Summary

Good afternoon. I'd like to welcome everyone to the first day of the KeyBank Life Sciences MedTech & Investor Forum. My name is Matt Mishan. I'm a senior at MedTech Analyst, and I'm pleased to be joined by ResMed, which is represented today by its CEO, Mick Farrell.

For the audience, I'll start us off, but questions can be submitted directly to me by typing into the box below the video screen, and I can relay. So Mick, welcome. Thank you for joining us. I'm just going to get right to it and ask how should we think about the Russia-Ukraine and the COVID shutdowns in Asia impacting your ability to kind of ramp supply chain at this point?

Yes. Well, look, there are a bunch of factors in the market right now, and I'll walk through them all, I'll definitely cover the ones you said, but maybe a little bit beyond that, Matt. COVID shutdown's a big impact for us all in 2020. We saw that big downturn a dip and then sort of the coming back. And if you look across the portfolio of 140 countries we operate in, we're somewhere between 85% of the sort of biggest lockdown countries, maybe China right now, up to 100%, 105% in some countries. We're seeing Germany above triple digits in terms of patient flow. They just found new ways, despite openings and closings of cities, to get patients through with digital health, also with that new testing and so on. And the same thing in the story around the 50 states here in the United States and all 140 countries. So we're still seeing a sort of nice steady recovery of patient flow, which is really good. Russia, Ukraine, very topical, obviously. I mean, just an awful situation of somebody invading a neighboring country without provocation, awful situation for our teams in Eastern Europe, particularly lots of stress on the team. But in terms of our supply chain, really no impact. We don't have any serious product sourcing there. We did have some coders who are contractors in Ukraine. We've got 95% of them out. We're moving all projects out by actually later this week. And so I feel comfortable with there. And we had a relative very de minimis distribution into Russia, which since there's no cash flow, that's just stopped distribution into Russia, but it's de minimis. And we are providing some aid, some ventilators, some hygiene materials and certainly some help for the refugees leaving Ukraine. We have people from Ukraine living in the homes of our teams in Poland and in Germany, where they've come on trains and they're living with ResMedians in their homes. So that's just humanitarian aid and some monetary aid we're doing. But that's Russia, Ukraine, really no direct impact on supply chain, but certainly an impact on the world and our company. Thirdly, you've got global supply chains, which are an issue on the company, particularly around Asia and electronic components semiconductors, particularly coms chips and capabilities, and those are impacting our ability to meet the seemingly infinite demand with the fourth factor that's happening, which is our #2 competitor, Philips. We're #1 in every market we're in now. In sleep, they're number two, but Philips are there with their recall, which is 18 months now from their start in June '21 through today, say, December '22. I think it could be a little longer than that, but infinite demand, and we're not able to meet all of that. As you saw in Q2, incredible double-digit growth of our device business and mask business but not infinite growth, right? We're not able to meet every single sleep apnea patient's needs as they come through that system as we come through the recovery. So you've got all those factors sort of coming in. And then, of course, and in air freight being down because consumer travel's down and the cost of that being double, triple or quadruple or quintuple and sea freight being 5x, 7x, even 10x the costs. And so all of that's gone into the tough situation, perfect storm of dynamics. Our team are doing a great job to be able to deliver the flow of product that we did in Q2. We said Q3 is going to be tough. It will get slightly easier as we get to June, September and December, but it's not like a switch and this V-shape recovery. I've talked about this. It's a U-shaped recovery of this because it's working with suppliers, existing suppliers, new parts to existing suppliers, new suppliers with existing parts and new suppliers with new parts as we redesign those in. And we're even looking at the use of non-coms devices where we can take up a 5G chip. But then, of course, we reach the next bottleneck in the system, which is another microprocessor in the system. And so, we're pulling out all the stops, Matt. I can tell you; we're driving the best we can to deliver. Everything within our control. I believe the engineers are doing an amazing job of the redesigns, validation, verification, requalification of existing suppliers, new parts and new suppliers, existing part new suppliers, new parts. But with all that, it's almost 2 steps forward, 2 steps back some weeks. And every now and again, there's this work called decommit, which I've never heard of. But it feels like we're swimming upstream. But every now and again, we get ahead of the current and every now and again, we're equal to the current and to a very dynamic situation.

Yes. I guess the follow-up to that is it seems a little incremental these challenges in raw materials and components over the last few weeks. I guess, one, are you still confident in your expectation to hit the 300 to 350 for FY '22? And I think the second piece, which is more -- which I think is more important because it's more forward-looking is has your visibility changed for your ability to kind of supply and the commitments, you're receiving in that in -- for the June, September and then December like ramp?

Yes. Look, I mean, so what we have is 2 data points of the 4. That estimate that you mentioned, 300 to 350, is one that we made back in August 2021, when we're looking at the whole fiscal year and the sell side with no offense to some of your colleagues, not you, of course, Matt, but the sell side was varying between assumptions of $50 million at the low end of incremental revenue up to $950 million, if you remember, of incremental revenue. And that was just such a broad range, basically from 0 to $1 billion. So we said, look, our best estimate here in August 2021 is $300 million to $350 million. So we've given 2 data points on that. We had sort of $85 million, roughly $80 million to $90 million in Q1 and sort of $45 million in Q2, $40 million to $50 million of incremental in Q2. We said Q3 is going to be very difficult, similar to Q2. And Q4 will get better, but not that much better. And then we've got June and then we've got September and December that we think we'll build upon June from there. So I'm not here to give an update on that estimate, it's still a reasonable estimate. I think it is going to be tougher to hit that estimate than it was 90 days ago. I mean, I said that on our earnings call that Q3 is going to be incredibly tough. And look, it's not been difficult just the last couple of weeks. It's been difficult these last 12 months. Supply chains have been up and down for 12 months across every industry. I listen to many other earnings calls and these updates from my colleagues. I particularly listened to the Intel's, the AMD's, the Qualcomm's because they're the ones making the chips that we need that are in supply constraints. And even they don't know about their supply from their foundries and either building fabs that are going to make great for us in 2023 or 2025, I need stuff here in 2022. And -- but look, I can tell you, we'll give you an update on our earnings call in about 4 weeks when we'll have 3 data points, Q1, Q2 and Q3, and then we'll have a much better estimate on that range because we'll just be looking at 1 data point Q4 to give the estimate for the full fiscal year. But I think, look, it's a dynamic situation, everyone is facing it. We're doing everything we can. We see the patients building up in this backlog. It's not good for patients. And I can tell you this, we are not limited on manufacturing capacity. And every time we get 1 more chip, we put it straight into device. It goes straight through manufacturing plant in Singapore or Sydney. It gets airfreighted to L.A. or Atlanta, our 2 biggest distribution center there in Moreno Valley and Atlanta, Georgia and also to the Netherlands where we have a distribution center for Europe, and it goes all around the world. And obviously, to Asia, we can ship direct from Singapore. So great work by our supply chain team in a perfect storm of situation. So I can tell you, if Philips had their recall, ResMed would have kept up with all of our #1 market share demand. It's the fact that the #2 player is out that has made this incredibly difficult for us. But it's a great opportunity. We are creating value for our customers, embedding them with our digital health solutions, getting really good masks, sales with all the devices we're selling and getting people into the ResMed digital ecosystem, which saves lives literally with the ALASKA study, saves lives, saves money and brings efficiencies for everyone from the patient to the provider, to the physician, to the healthcare system.

Mick, what do you think about this current environment? I'm looking at the supply chain situation and inflation. We've never dealt with like -- anything like this before in our investment horizons. As you kind of look at it, what do you feel comfortable with is, is transitory? And then kind of are you thinking about making long-term strategic changes to like manufacturing, supply chain and implementing in the inventory like to better address this longer term, 2, 3 years out and maybe get ahead of that?

Yes. No question, Matt. I mean, I think everybody has reassessed their supply chain. We actually have had 2 opportunities in the last 24 months to do that. Number one was the ventilator crisis in 2020, where we did 500% of the flow of our products for Astral, one of our life support ventilators. We did 350% of the volume for our Stellar, ECO ST-A, ECO ST sort of noninvasive bilevels as well. So that 5x flex, if you like, and 3.5x flex across ventilators taught us a lot. We were constrained on single-source components of like an [indiscernible] from a particular plant in India that was hit by a COVID wave, and that was slowing down our ventilator response. We're saying, okay, so no single source from a low-cost country for a critical part, right? And so you look at that, you say we've got to have that. But look, the science of supply chain 2019 said, absolutely, single source is okay because you're thinking you have backups and you've always got inventory. It turns out, when you want a 5x flex, 3.5x flex, that's not enough. And so I think we've learned a lot through that ventilated crisis in 2020. We then learned through this steady recovery that we were having issues. We will hand them out, but we were keeping ahead of -- we had our flex stock. We have stretched our systems, and we're really pushing to the limit with the COVID recovery and supply chains being down, boats being lined up of Long Beach and South Carolina and all-around Europe and Asia, but we're able to get through there with airfreight and so on. The perfect storm was when our competitor recalled 5.2 million devices in our space. And then that were a perturbation that was in a once-a-century crisis and in a once in every decade, I would think, the biggest by a factor of 15x in our industry recall. You can't be ready for everything, but we can get better, and we have learned a lot in our supply chain. So I think when we meet the next crisis, and I hope it's not a global pandemic and we need a 5x our vents, but we'll be able to keep up with that. And I hope it's not our #2 competitor doing another recall and impacting again, but we will be better ready for those types of crises in the future. So we've learned and we're a lot better. And I can tell you, if you just look at the numbers, we grew devices by 16% constant currency growth in the last quarter Q2. We grew at 19% in U.S., Canada and Latin America. We grew 13% across Europe, Asia and Rest of World. So it wasn't like we didn't grow. We grew incredible double digits, like double industry growth. We just weren't able to make every bit of demand created by our competitor having that massive recall that leads this backlog of patients.

Okay. Speaking of that competitor, what are your thoughts on the recent public notification from the FDA regarding Philips communications around the recall?

Yes. Look, I'm just reading what you are, Matt, and what your listeners are on this call, which is a public document here. I mean, obviously, I have an internal team that does a lot of analysis of what may be between the lines and what we can read from that because we have an incredibly strong and good relationship with both European regulatory authorities and the MDR process and U.S. regulatory authorities and the FDA process and great strong 510(k) that we've had on all our S8, S9, AirSense 10 and AirSense 11 devices. I think the big flaw was they have done a regulatory assessment, not a 510(k) on the last couple of generations. If you just look for a fatal flaw, that was it. Our regulatory assessment going back decades is just not the right thing to do. And I think there's a fundamental floor instead. But if you just read through the public documentation there, that 483 and 8 observations, 7 -- 8 observations, and at least 3 or 4 of them mentioned management systems and management culture and at least 1 mentioned executive and tone at the top. I think those sort of systemic things around quality systems take a lot of time for remediation. I've seen this in other healthcare companies, and it's not an overnight solution. And I think we're seeing them invest more in R&D for this remediation. They're going to have to invest a lot more over a long period of time. That latest notification from the FDA wasn't nice. It basically said, we don't think you're communicating strongly enough. And they did a survey, and a large portion of the customers that the FDA surveyed hadn't heard about the recall. There are still doctors who haven't heard about the Philips recall. And I think it's their duty, it's their job, it's their obligation to do a better job on that. That's what the latest public notice said. So Matt, I'm just reading -- I'm just repeating sort of paraphrasing what the FDA has already said in those public documentations. I mean, look, if I had advice from my competitor behave, just to do the remediation, publicly same year [ Cooper ] when we made a mistake, it's incredibly tough. It's 10% of our revenue. That's a big deal. We're fixing it. We're all on top of it, and we're doing the best thing by patients and we're going to communicate as broadly as we can and do the best we can and be realistic in the timeframe when you're going to come back to market. I think they've put like 700,000, 800,000 devices packed out of 5.2 million. They say they're going to be complete by December. I'm not sure the math works out when we're 8 months in, 9 months in, and you're only 15% of the way and saying you're going to be done in 18 months. So it's tough for all just to get parts and pieces for these replacement devices. So I think -- that's what I do. I'd advise a bit more marketing to the -- frankly, to the channel to say what to do, patients first and realistic timeframes. But look, Matt, I'm just interpreting what you read publicly there as well.

No. I think what we're reading into it, and I don't want to -- I'm not taking up your time because I'd rather have you talk, but they've gone from 4 million recall devices to 5 million recall devices. They've said, you have not reached out to enough doctors. That means it's going to take -- probably going to take longer for them to meet the recall. And I think that's basically what you're getting at. And then to get the people on to the recalled devices, are they going to have to plasters recalls and doctors' offices with literature saying that we have this problem with this device. And then what does it do like reputationally for like a Philips with those same customers. So again, taking that into context, like, what are the various alternatives kind of ResMed is preparing for in sort of that December timeframe, that early March timeframe when you're better able to kind of supply the market?

Look, I think it's interesting. It's a 2-part question. One is when will our competitor come back? They say December '22. That's a scenario. We're running that scenario that they come back in December '22, even as early as October, we're running that scenario, which is what they say they're going to come back in that quarter. I don't think it's realistic based upon the numbers that are out there. But let's say they're able to get there, that's actually good for us in this way that we get a 60% attach rate to every device space sell. ResMed masks are the best in the market with really strong share. And even on our competitors' devices, we get really strong attach rates. So it's actually good for us on high margin business. And it's good for some of humanitarian level. There are patients waiting for therapy in line and they get access to. I would say, an inferior product, but at least a product that can get them out there and a great mask in ResMed. So that's the strong side if they come early. If they come later, which is I think is more likely, like in the March 2023 quarter, even the June 2023 quarter, when they're fully back, right, not selling their first new patient setup, but fully back, getting the share that they think they deserve, right? What is that new share they deserve? It won't be what it was before. It never will be with a once-in-a-decades recall like this, doctor's prescription pads, patients' perceptions and the markets, perceptions around quality, it will come back. But I think they'll go after sort of the low share players first, the lower volume players first. So they'll go after the 3B residents. They'll go after the UL devices first. and try to take that share back because they don't have the end-to-end digital that ResMed has and the engagement we have with myAir, AirView embedded in the work streams of our customers, not because it's anything other than delivering great value. We lower the labor costs of setting a patient up on CPAP by 50% when the patients on our digital solutions end-to-end. We drive up adherence for the patient up to 87% from peer review published evidence. So this is the sort of stuff the value we provide. So I think Philips comes back either December, March or June 2023. Probably December 2022 is what they say. We're ready for that scenario, we're ready for a March 2023 scenario and we're ready for a June 2023 scenario. As you said, we're getting better every day with access to supply. We're talking about are we going to start to get strong rebounds of supply in September or December this year? Well, look, by the time they're back, we'll be up and running. They'll be going after the share of the others. I think there could be some -- in some customers, some permanent restructure of the share. Nobody wants 1 supplier. I get that. But is it going to be the 60-35-5 or is it going to be closer to a 70-20-10 or an 80-15-5? Who knows? We've got scenarios, and I think every customer will make their own choice on that. ResMed has been in this game for 33 years. We are dedicated to respiratory medicine, sleep apnea, COPD and out-of-hospital healthcare and software to provide for people there. We're laser focused on it. We have had recalls. We had one back in 2008, but I think we did it incredibly well focused on patients, building up inventory and then really even paying DMEs to do the resets and the resupply of those parts and pieces back in 2008. And so, when you're in a glass house, you've got to be careful. The FDA is watching all of us. We've done all the right things at our 510(K). We're doing all the right things now in supply chain. I think we're going to be in a really strong position here in 2022. I think we're going to be in a really strong position in 2023 as well. And the real point here is not looking back at a competitor of what they're doing. I'm looking forward to our partnership with Google and Verily on what we're doing to digitally identify, engage and enroll patients. The 936 million patients who suffocate every night in 140 countries and digitally engage them in from that Google search, from that WebMD search, all the way through to screening diagnosis, treatment through a digital pathway and really engaging them in care. I'm being very careful with our joint venture there is Primasun and Jonathan Lobbins is the CEO of that joint venture. We're not turning on demand gen in 2022. If we believe the competitor will be back in Jan 1, 2023, I'm telling the team, be ready to turn on demand gen then because that's where we're going to need to drive it. And whether or not our competitor's back, we'll have the supply, and we'll be able to make that happen. But no, I think 2022 is going to be a great growth year for us and a tough one for doctors and situations with supply chain. I think 2023 is going to be great for all of us, for patients, doctors and ResMed.

Before you turn on that demand, don't you have to meet the backlog of people that can't get a sleep apnea device? I mean, you -- when you say infant demand for CPAP devices, you're not even talking yet about how to increase market share or increase penetration of the therapy into a larger addressable market. So can you kind of put some perspective on, first, what kind of backlog is being developed of patients that are not able to get a sleep generator at this point, before you even start to think about turning on the Primasun's and/or CVS health partnerships and stuff like that?

Yes. No, it's a really good question. And obviously, we have some very detailed modeling about the epidemiology, but also the flow of patients in all the 140 countries that we're looking at detailed modeling. We obviously don't release that publicly. It's very proprietary. But we know down to the wire how many patients are involved in that backlog. And the beauty about something like CVS or Primasun joint venture is that these are things that will build up over time. And so when you turn on demand gen, you might turn on a certain metropolitan statistical area where you know you have flexibility in case load that the backlog is not so much that you can't see patients being able to come through. It might be an area that you have really good home sleep apnea testing adoption by the physicians or really good digital end-to-end systems at certain state or a certain country, where you have that capability. And so you can look around on that context. But yes, no, we have very detailed information, and I'm sure you have a sell-side model around what that backlog looks like. And look, it's not infinite demand. There's nothing infinite except maybe God. There's nothing infinite in this world. It's finite. We know exactly how many patients are in that backlog. And our factory that we just finished in Tuas; Singapore could keep up with all the demand. So it's finite, and ResMed could do it if we had a sufficient supply of all the parts and pieces. But if we have 99 parts, and you need 100 to make a CPAP, we don't have a complete CPAP. And so that's what we're working on, and that's back to your first question. But look, absolutely, there's 3 elements to it. There's the backlog that's coming and us getting patients through there. There's the -- what's the net new share that we gain and what does that look like through 2023? And then there's the demand gen. We're not an either/or company. We're a both and. We're looking at all 3. We're saying, okay, let's get ready for that backlog. We know what it looks like. We quantified it. We're ready to go. We understand customer by customer what our share is now, what our long-term share is going to be, and we're working on long-term contracts and embedding ourselves in the workflows and getting those and we're looking at demand gen because we're looking forward to 2025 and helping 250 million lives by 2025. That's just looking back at 2020 COVID crisis, 2021 supply chain crisis, 2022 Philips recall crisis, those are good. We've learned from all of them. Now we're on to what we're going to do for the future.

Okay. I want to shift to mask and accessories. It's something we've been spending more time thinking about it, is kind of how much more room there still could be kind of better optimizing the level of recurring revenue for mask and accessories per device in your installed base? We've done the math and we published an analysis. We've haircut the number of devices you sold into the marketplace by a certain amount. We're still coming up with math somewhere like $100 to $125 of mask and accessory revenue per device. Maximum allowable reimbursement in the U.S. is greater than $1,000 per year for the DME. Just how much room do you think there still could be to optimize that for you?

Look, I mean, obviously, we've got very detailed models around patient flow adherence, lifetime value of a patient with some really good data around the importance of adherence. I mean, we have a study -- firstly, we have a study and just released the ALASKA study, showing a 29% reduction in mortality for a CPAP adherent patient over a non-CPAP adherent patient. And that's across 140,000 patients in France, overlapping our 10.5 billion nights of data with incredibly important de-identified data from the French social security system. And we have other data showing from the Sleep Heart Health Study showing similar or even higher mortality reductions, 50%, 60% reduction. So incredibly important to get adherence. We also have studies showing that patients who are on a resupply program for their marks, a regular resupply program, where they're being contacted, e-mail, text, IVR, some interaction and they're on that program. Their adherence rates are statistically and clinically significantly above those who are not on a program. So A leads to B, and B leads to C. So a replenishment program leads to higher adherence. Higher adherence leads to lower mortality. This is a really good equation to drive, right, in terms of quality of life, improvements of mortality, morbidity, but also in terms of improvement of the patient getting a clean mask. And obviously, the provider, ResMed and the doctor being happy in that process. But there's a lot of factors that go into total mask growth. You saw in our Q2 numbers, we had 10% total growth across the whole world of ResMed in masks. We had 11% growth in Europe, Asia and Rest of World on a COVID comp there from there, a 9% growth of -- on a really strong comp, actually, a strong COVID comp in U.S., Canada and Latin America. So really strong growth. But there are headwinds and tailwinds in mask growth, right? The headwinds are, as we talked about, the Philips recall; number two, players not being in the market. That's a lot of new starts that aren't happening and really good attachment of ResMed masks for them. About 20% of the flow every quarter, every year that's new patients set up. So when that's down a large amount by somebody just not being in the game, that lowers those flow of new masks, if you like, on new patients. So that's a headwind. But there are also tailwinds. We've got the Snap technology. We've got Brightree resupply. We've got our engagement on myAir that drives up adherence and AirView that the doctor is driving adherence and interacting with the patients that are there. So those are sort of balancing out to deliver. We grew at 10%. 2019, we were saying device growth is mid-single digits. Mask growth is high single digits. So we're ahead of that sort of normal 2019 mask growth. But there's going to be ebbs and flows of those headwinds and tailwinds as we go throughout this recovery. So as we get supply chain back, as a competitor comes back, I think you'll start to see those masks and accessories go back to a more normal growth. But I think it will be a new norm because there were things that were different math through COVID, we saw the importance of digital health, remote telehealth, engagement of patients with digital apps. So they're in there. We saw the importance of respiratory health and hygiene, all the mask wearing, all the interactions said, I want to replace my tubing, my humidifier masks more often. And we saw engagement of doctors in allowing and promoting even this remote care. Some of them have been resisting home sleep apnea testing or resisting models that interactive directly to patients. They're now not only fully onboard, they're asking us to drive it faster and faster. So I think all those factors lead to in the long term is having probably a secular growth that's higher in the long term for our industry because people will replenish more often. I'm not going to walk through the details your numbers, we've got our own numbers and as probably a little more, because we have more knowledge of all the touch points, we have customers a little -- and we're following 1 company, you're following, what, probably 25, 30? We got a little more knowledge on that. But I can tell you that lifetime value is very important to us because it lowers mobility, lowers mortality and improves the bottom line for our providers, for ResMed out, for our shareholders and it improves the healthcare systems. It shows the ROI, the true ROI of sleep apnea in long-term adherence to CPAP, APAP, bilevel, dental, hypoglossal, nerve stim that we're in with our Nexala, any of those that can keep the patient out of the hospital. Obviously, the best, the gold standard in CPAP, APAP, bilevel, and that's what we do for the vast majority, but we're there across the board.

I trust your numbers more than mine. All right. So I wanted to move to SaaS, while we still have some time because I think post-acute care is, it's a big deal for you, and it's going to be a big deal going forward. I guess the merchant kit, I mean, it's a fragmented market right now. You are a market leader, but can you be the market leader in post-acute SaaS? I mean, can you consolidate that and become a much larger player in that area?

Look, I mean, we already are the leading strategic player investing in out-of-hospital Software as a Service, right? We had a very strong franchise around 12% of our -- 10% to 12% of our revenues, depending on the quarter. So I mean this is a very strong $300 million, $400-plus million business that's growing very strongly. And actually, what we've seen with census rates coming back and still nursing facilities and hospice on the sort of facility side and the growth of home health, the growth of private duty home care, the growth of our home medical equipment business SaaS, we're really seeing -- I think, you saw 7.8% growth in the last quarter in the Q2. That was an uptick. We have a new President of our SaaS division, Bobby Ghoshal. He was previously the Chief Operating Officer over at Brightree one of the 2 -- the largest of the 2 major brands that we operate in, in the SaaS business. So we already are the leading strategic player in that space. Your question is, will we get bigger? Absolutely. Will we be more of a leader? Absolutely. I think part of your question may be in the parentheses or the subtext there, Matt, was are we looking at just organic growth that we can look at some inorganic growth. The answer is, as I said earlier, no false dichotomies here. Yes, and yes, we're going to be investing in organic growth. You saw strong 7.8% growth in Q2. I plan to work with Bobby, and Bobby is doing an amazing job taking over leadership there to drive high single-digit growth as we exit here, fiscal 2022, and then maintain that through fiscal '23. And then obviously, we want to drive some leverage there and obviously try to get to double-digit growth in EBITDA and free cash flow back to the core business, but really reinvesting, strong double-digit reinvestments in R&D in that division because it's all about reinventing that platform every 2 weeks, 4 weeks, 8 weeks, 16 weeks, new apps, new updates, new capabilities on Brightree, MatrixCare, HEALTHCAREfirst, Citus and beyond. So really excited about organic growth. There are some interesting ones. I think you saw the $14 billion acquisition of Teladoc buying Livongo, $14 billion. And you look at the market cap now at Teladoc, the buying entity, they bought something for $14 billion. It's just under $14 billion. I think it was $12 billion last time I looked. And so you say, maybe some of those frothy evaluations back in 2021, where everyone, "Oh wow, digital health. COVID's here digital health, we never thought of this." We've been in this game for 10 years, really in a strong way in the last 8 years, ResMed has been leading in digital health to sleep apnea, COPD and now out-of-hospital SaaS. I think some of these valuations come back a little bit more back down to work, and there might be some very interesting tuck-ins and all larger ones that ResMed will look at over time. Look, we've got access to billions of dollars of capital. It's not burning a hole in our pocket. We're going to use it appropriately when it fits our strategy, when the numbers pencil out that there's a good return for our shareholders, as we get a really strong ROIC versus WACC, good MPV, good free cash flow, good flow into our business. But really importantly, there's a cultural fit. This team, when they come on board, will become ResMedians and really be part of our mission to change the world of out-of-hospital healthcare. I think there's a lot of potential out there to meet those 3 criteria, but we'll be looking at all the involvement. We are the leader now in terms of strategics. I think we'll continue to be that, and we'll be the leader across the board over the coming 1, 3, 5 years in the space.

All right. And then the remaining time that we do have, I'm not going to give them a chance to ask about Propeller and kind of get a sense of where you're at with Propeller. And just an update on how you're thinking about driving growth, like when it could become a little bit more material to the ResMed thesis?

Yes. Look, so we have 2 minutes left. I'll try to do my best to summarize what we bought. When we announced the buying, we said, look, we're buying a start-up. It's really an incubator opportunity for ResMed to go from stage III, stage IV COPD, where we treat people with ventilators, noninvasive ventilators and life support ventilators, really towards end of life, which isn't the normal ResMed way. The normal ResMed way is preventative care and not just treatment care. We're going to do both end, and we're obviously going to keep our cloud-connected AirCurve, ST-A's, our cloud-connected Stellar's, our cloud-connected Astrals and take care of Stage III, Stage IV COPD patients, incredibly important, keeping with great quality of life and out of hospital. And those with neuromuscular disease, Duchenne muscular dystrophy, ALS, we're taking care of all of them in terms of our respiratory care our cloud-connected portfolio. But Propeller is a great investment, and it allows us -- I think, to jump to your punchline there, it should be material to ResMed's business by 2025 and beyond, right? But it's -- so we've got a good couple of years to sort of, I would say, develop these models where we're going to risk-bearing entities, we're going into payer providers and we're going to pharmaceutical companies, but really in that order and saying, here's the data, and we're publishing these data. We just did a HIMSS, published some incredibly strong data around driving adherence rates up on cloud-connected in inhalers to very high double digits. Double-digit increases are non-cloud-connected versus cloud-connected inhalers. When they're part of that digital ecosystem, they're using the Propeller app and we're able to increase that adherence and lower the hospitalization rates and lower -- ultimately, we don't have data on that yet. But ultimately, we will show that we can lower death rates because the drugs work, they do improve the care and they do lower hospitalizations and therefore, severe acute events. But we've got to get more and more of those data out there, but it's not just publishing one study here or this pilot there. It's making it real within that Blue Cross Blue Shield of Massachusetts, that Cigna of Minnesota and that Kaiser Permanente in a Mountain or Geisinger ecosystem. So that's what we're doing. We're working at every day. Susa Monacelli and Ian Thomas, the CEO and COO, the GM and Head of Ops there, incredibly strong team. They've tightened up that team. They've really got it laser focused. I think we're going to see some really interesting milestones of some announcements that they're making things happen over the coming 12, 24 months, but material by 2025. What you didn't ask about, and I'll do in the last 30 seconds is high-flow therapy, which is, I would call another experimental technology. It was proved during COVID that it worked in the hospitals. So it works in hospitals, acute care and the sick care system, low-volume, Red Ocean system of hospital care. ResMed is out-of-hospital care, Blue Ocean. We are developing high-flow therapy for the home. We're doing clinical trials right now in Europe. When we get those clinical trials, it will lead to great clinical evidence. It will lead to governments establishing protocols and standard of care, that will lead to reimbursement. That will happen over the next 1, 3, 5 years as well. So all of the above says great care for COPD patients from ResMed with Propeller, high-flow therapy and, of course, our cloud-connected vents.

Well, next time, I will ask about high-flow first. So Mick, thank you very much. Thank you for everyone joining. We ran out of time, unfortunately. Thank you.

Thanks, Matt.